Economic incentives of agents who run the institution are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. But if corruption is exposed and the disincentives are high, then corruption would cease
Last week, veteran Indian activist Anna Hazare was arrested hours before launching a hunger protest. His cause is corruption. He is demanding that the government pass a stronger law to combat corruption. The government rather disingenuously threw him in prison. Prime minister Manmohan Singh says that Mr Hazare's methods of protest, which includes hunger strike, posed "grave consequences" for Indian democracy.
Still, Mr Singh's remarks and his government's actions are hardly surprising and go to the heart of the problem of corruption. For contrary to its definition, corruption is not a moral issue, it is an economic issue, a law and economic issue.
Laws are provided by the state. Each and every law guides behavior by providing incentives and disincentives. For example a law governing criminal conduct, like stealing, provides the disincentive of incarceration. Some laws provide economic disincentives like fines. Other laws provide economic incentives. An example would be a tax law that provides you with a special tax rate if you take certain actions.
Most legislatures and governments feel that they can solve problems with laws. They can't. There are very real limits to what laws can do. The reason has to do with enforcement. Some laws cannot be enforced. For example, laws relating to certain goods or services like drugs and prostitution are basically impossible to enforce. The reason is that the economic demand for these goods and services are widespread.
Other laws concerning the market are also difficult to enforce. The Chinese feel that they can control inflation with laws relating to price controls, but these always fail. Their attempt to restrict exports of rare earth metals just led to smuggling. Any international investment banker worth their salt can circumvent regulations or utilise regulatory arbitrage to lessen their effect.
The same problem exists with corruption. The problem is that the government is trying to use law to cleanse itself, but that is an enormous conflict of interest. It is really an agency problem.
In game theory, managers, elected officials and even police officers are agents. Managers are the agents of a principal, the owner or shareholders. Elected officials, bureaucrats and security personnel are agents of citizens. The best move for an agent is to cheat the principal. The principal hires a watchdog and the agent's best move is to suborn the watchdog. As long as the institution has the job of policing itself, it will fail. The economic incentives of the agents, who run the institution, are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. So in many ways it does not matter how strong the anti-corruption law is. As prime minister Mr Singh has aptly illustrated, it is not in his best interests to stop what has helped keep his party in power.
This does not mean that citizens are helpless. It does mean that there are limits to what a strong anti-corruption law can do. The solution though might lie elsewhere. The best way to control corruption is to deal with the asymmetries of information and economic incentives. If corruption is exposed and if the disincentives are so high, then the corruption would cease.
Fortunately, we live in a time where each and every owner of a cell phone has access to millions as never before. You don't even need a computer. Your cell phone allows you the ability to network and that power allows all of us to expose corruption. The other part is to provide economic and social disincentives.
One thing that Mr Hazare's campaign has shown is that you can market anti-corruption. But why stop with just hunger strikes or inflammatory editorials? Make it a contest. In the United States and even Afghanistan there are televised contests and prizes for amateur performers. Why not have televised contests for whistle blowers? Whistle blowers, or enforcement personnel, should not only receive some sort of immunity, but celebrity status, cash rewards, honorary medals, titles, sinecures or automatic political office granted not by the government, but by cell phone vote. Cash could be generated by fines from both personal and corporate liability.
Corrupt officials should not be neglected. There should be contests for them as well. The most corrupt official should be the subject of both weekly, monthly and an annual vote for town state and country, perhaps on a specially designated Corruption Day. Annual lists should also include all past year's winners. Shame can be as powerful a disincentive as incarceration.
Stopping and preventing corruption is certainly possible, but to do so we have to recognise the limits of the law. If the institution is corrupt, which it is by definition, so will the law. But that does not mean that society is completely helpless. It just has to know how to advertise.
(The writer is president of Emerging Market Strategies and can be contacted at email@example.com or firstname.lastname@example.org.)
India's national security and economic growth are at risk at the hands of a ragtag bunch of pirates, who can reach within miles of the Indian coast and pick up whatever they want, when they want. This is the bigger issue, which gets subsumed while emotions well up on the issue of the seafarers in captivity for months
Twenty-one families all over India must have woken up on Friday, 19 August 2011, breathing a sigh of relief that their breadwinners on board the MT Fairchem Bogey (IMO No. 9423750) were out of the piracy-infested waters in and around Oman. Anchored just about 4-5 miles off Salalah in Oman, the Marshall Island flagged tanker was partially loaded with methanol and waiting to berth inside the port to load some more.
Methanol, without going into details, is as dangerous to transport as petrol, if not more so. And under some circumstances, like if there is a change in pressure or higher ambient temperature, it can be much more dangerous. It's not a job for every seafarer. You certainly have to be one among a special breed of highly committed, experienced and trained seafarers to work on a modern tanker. Carrying methanol puts you a cut above this lot, too, and people who work on such ships are worth every dollar they earn, and more. Put it this way, even without the additional stress and risk of piracy, there is bound to be enough on the minds of the officers and crew on board a methanol carrier tanker ship.
So, when on the morning of Saturday, 20 August 2011, a fairly large group of pirates, in multiple boats, swarmed the Fairchem Bogey, the first thing on the minds of the people on board, over and above their own personal safety, would probably have been to ensure that the ship and the cargo or residual cargo on board did not suddenly become a huge explosion.
There is a huge port nearby, with a big city next to it, and millions of lives to think about. Then, and only after they had taken these precautions, would they have-in all probability-headed for the safe area/citadel on board. By that time it was simply too late. The pirates had taken over, and with guns to their heads, the ship pulled up anchor and set sail in a south-westerly direction towards Somalia.
After all, nobody in their wildest of dreams could have imagined that such an audacious raid would take place hardly 4-5 miles from a port considered to be so safe, that the minimum level of anti-piracy safety also known as BMP-1, was in position at Salalah. Even Mumbai, far away from the piracy lanes, is kept at BMP-3 most of the time. That this part of the world is observing Ramadan is a fact that, also, cannot be overlooked.
BMP (best management practices) for anti-piracy along with some other details are provided here.
Here are some points that must be taken into account.
1) 4-5 nautical miles is less than the distance that you see most ships anchored off the Gateway of India. That's the reality. One of the tourist boats at the Gateway would take an hour or more to cover that distance in good weather and longer during the monsoon. We already know the level of coordination that exists between the authorities if in case something like this happened off an Indian port.
2) BMP levels sound very good on paper, but, in reality, on working ships with bare minimum safe-manning levels, they tend to stress and over-strain the already over-worked staff to a point where there is simply no bandwidth left to do everything that the management ashore recommends. This is specially on ships carrying dangerous cargoes. You simply do not have people left over for security duty, and even if there were, how much can they do with fire hoses? In many cases that this writer has heard of, the pirates simply walk around the seamen with the hose, and cut the hose with a sharp knife. End of resistance.
So now, 21 families are being consoled and counseled, and my contemporaries at the ship-management company (Anglo Eastern, in Mumbai) as well as the Directorate General of Shipping, are again putting into effect their post-piracy processes. This includes ensuring that senior management are in contact with families, offering full support, and now, in the case of some of the better companies, double salaries while under capture by pirates.
There is really no more benefit in hitting the authorities on their heads anymore, for not taking steps which could have prevented such incidents. After all, what good would armed guards with guns be on a tanker carrying methanol? In addition, as has been explained to me, Delhi is deaf to all entreaties and logic as far as trying to explain the connection between piracy in the Arabian Sea and the larger issues of national security and protecting the Indian economy are concerned.
Let's face it, about 6% of the world's seafaring community is from India. About 10% of tanker officers are from India. These numbers are simply not enough to make a dent on anything, even if the Indian government takes some unilateral action in the context of Indian seafarers on Indian or foreign flag vessels.
Next, all calculations on deciding vulnerabilities of ships used to take into account maximum speed, as well as the effect of the ship's wake and bow wave, as she sped past. Now, with this revival of attacks while at anchor, which is one step further into outright hijacks and piracy, a whole new approach will have to be figured out because there are bound to be copycat attacks soon, especially as the monsoon weakens over the Arabian Sea. Incidentally, being attacked while the ship is at anchor is nothing new, but it was usually all about quickly stealing whatever they could lay their hands on and running away.
Yes, ships have been purloined from anchorages in the past-certain liberation movements in neighbouring countries were known to do so, killing the crew members in the bargain and then using the ships for their own purposes. But hijacking a ship for ransom, pure and simple monetary, has not been heard of in a long while, barring the still unresolved case of the MV Arctic Sea which was hijacked from the English Channel a few years ago.
There is really not much one can do or suggest anymore, because the authorities as well as the ship owners and ship managers are comfortable with the concept that the Indian seafarers on board are collateral damage, who knew what they were letting themselves in for when they chose to work on such high-risk ships in high-risk areas carrying high-risk cargoes. However, one can only hope that the ship owners and ship managers offer as much support as possible to the families of the seafarers on board, and more.
Because, this is for sure, the ship and cargo on board is certainly heavily insured for any and all risks. This needs to be extended to the seafarers too. If, at the end of the day, it is all about money for all the players in such episodes (owners, insurers, pirates, cargo interests, and others) then the seafarers need to be covered too. Because, the fact remains, nobody promised us a risk-free career when we came out to sea, lured as much by the glamour as the money. The glamour is now history; so if it is all about money, then so be it. That's as far as the seafarer is concerned.
But the larger picture, the one that the Indian government needs to really get concerned about, is the threat to India's national security and economic growth. Both are now at risk, at the hands of a ragtag bunch of pirates, who can reach within miles of the Indian coast and pick up whatever they want, when they want. This is the bigger issue, which gets subsumed while emotions well up on the issue of the seafarers in captivity for months. And for just that reason, the attitude of the Directorate General of Shipping, ship owners, managers and unions, of keeping everything hush-hush, is almost anti-national. Come out, and be done with it, let the media in on whatever is happening. Because the issues are much bigger.
The movement against corruption deserves a lot more support than it is getting so far. Because, the truth is that the target for other countries to "control" India will be the wealth of agricultural production and potential thereof which rests in the hands of the upwardly mobile rural poor. Who seem to be terribly unrepresented in the movement so far
You don't have to go too far from the bright lights and shiny malls of South Delhi to find out what the rural poor and people from the agricultural heartlands are doing or thinking about the Anna Hazare and India Against Corruption movement. But you do have to take time out, let go the bonds of metal and glass, and if you cannot go "upcountry", then at least walk through the lanes of what are called "urban villages" or "lal dora settlements", within Delhi.
There are a few such habitats, their main streets have become commercial hotspots where everything can be purchased at prices way below what is charged in the main markets nearby, and where the bylanes provide dormitory shanty town accommodation for the people who keep South and New Delhi alive and ticking.
Delhi does not have the benefit of a Dharavi-type urban "slum" of massive size in the middle of the city, so the toiling masses, mostly recently removed from their rural settings, largely live in these invisible enclaves, scattered within the "posh" areas nearby.
For example, Kotla Mubarakpur village, located between Defence Colony and South Ex-I (NDSE Part I); Sadiq Nagar village, located between Ansal Plaza, South Ex-2, Andrews Ganj and Lajpat Nagar-4; ZamrudPur village, located between Greater Kailash, Kailash and Lady Sri Ram College.
Each one of these "rural urban villages" is less than 500-1,000 metres away from the "happening" markets of South Ex, Defence Colony, GK, Ansal Plaza and Lajpat Nagar, and lie within a square of about 3 km by 3 km within some of the costliest real estate in India. There are a few more around, like Shahpur Jat, Hauz Khas Village and Bhogal/Nizamuddin, which have similar attributes, but they've also become important for other reasons. Almost all of them appear to go back in history a few centuries, if not more, with ample archeological evidence.
It is important to provide these geographical and other details, because there is a generation of young people growing up in South Delhi who have never been there, inside their bylanes. Likewise, there is a generation of people living in those villages who do not come to the "posh" areas unless it is for reasons of working there. And not unsurprisingly, there is a generation of media people who are from the first group-that reflects in their reportage too.
So, when I went on a cycle tour of these three urban villages earlier today, what did I see?
Sure, it was raining, so there was the usual overflowing gutters, mud, slush and more on the roads, and chaos. But, I also saw what nobody else seems to have picked up so far: crowds of people standing outside television shops, watching the Anna Hazare movement unfold in front of their eyes, just like they would if there was a cricket match on. Only difference being, the cricket running commentary as well as scores in the case of cricket would also be carried on radio, while in this case, radio simply pretended that the whole movement did not exist.
It was even more interesting in the case of Doordarshan (DD). Barring a very short mention about Anna Hazare's release, nothing else, back to the usual. Same on All India Radio (AIR), almost violently different from the cable and satellite channels.
Now, for a moment, imagine that you and I are in the real poor rural areas of India, where disposable incomes are still very low, and satellite and cable TV have minimal penetration, if at all. The only option, then, are the LPT (low power transmitters) for Doordarshan in the tea shop nearby, and All India Radio. Why is this so important?
Look closely at the crowds thronging the Ramlila Maidan venue (which I have visited a few times already) and the other venues all over the country. As pointed out previously, the composition is largely middle class and urban or semi-urban-the rural poor who make up the numbers are simply not present. At the same time, despite the best efforts of DD and AIR, it is not as though they are not aware of what's going on. So where are they, our rural poor?
To get an answer I spoke with some of the people watching television on the streets of Sadiq Nagar and then subsequently at Kotla Mubarakpur. Anecdotal, sure, but valid all the same, and then re-confirmed this with a friend who is an authority on rural banking realities. Here is what emerged.
# In rural Bihar, especially North Bihar, for example, the success stories on growing maize as well as fish are much more than what the out-of-date numbers would reveal. But just a few parameters, like seed replacement, as well as repayment of loans taken, for example, tells you what is going on. Add NREGA to this, where is the time for Anna, and how is he relevant in a state where corruption has come rocketing down and which has not seen a single farmer suicide for debt reasons over the last few years? This is in a scenario where land reforms have led to fragmented small land holdings.
# In rural Kerala, which is mainly the mountain parts, the ground reality is the opposite-huge estates and plantations escaped the land reforms that swept other parts of India for particular crops like rubber, cashew and some others. Now, rural labour that has picked up best practices from other parts of the country, and has some money as well as staying power, is making moves towards these huge tracts, taking smaller parcels on sub-lease or profit-share, and going through some amazing agriculture models for high-value crops being grown quietly within the plantations.
# I was supposed to head into the mountains of Kumaon over the weekend, but had to cancel the trip due to heavy floods that caused massive dislocation of road and rail routes, as well as damage to life, limb and property. Elsewhere in the country, too, floods seem to be doing more this year than they normally do. This is being reported on DD and AIR, along with relief measures, but seems to be largely absent from the private "news" channels.
# FM radio channels, of course, do not reach the rural poor at all in most cases. But even where they do, it appears as though the prohibition on them talking about news now extends even to providing updates on traffic jams due to the processions being taken out in support of Anna Hazare. It is often forgotten how the urban poor, who may have a mobile phone, but not much access to cable and satellite television, invariably have a small radio built into the said mobile phone.
To sum up, the update from an ear on the ground here is that the Anna Hazare/India Against Corruption movement, if it at all claims to owe any allegiance to Gandhiji, needs to take some rapid steps to go to the rural poor. And very soon. Which, in the excitement of being blinded by the bright arc and halogen lights of television, does not seem to be happening.
What is happening, however, is that a certain element of squabbling between some other organisations that are trying to get involved, seems to be creating not just static and churn, but also reducing the effectiveness. This, along with the visible presence of some people who can best be called "opportunistic carpet-baggers", is not going un-noticed.
This movement deserves a lot more support, from across all segments, than it is getting so far. Blindly. Because, otherwise, the country continues to get sold down the river.
And that is the real threat, the huge uncontrollable monster which emerges from not being able to control corruption, when those who do not have the interests of the nation, realise that they can continue to buy their way through. Matters are way beyond street level corruption now and the emerging rural agricultural strength of the country must be brought into the equation. Food prices globally are rising faster than energy prices, and while it is easy to talk about "development" of India being put to risk because of this movement, the truth is that the target for other countries to "control" India will be the wealth of agricultural production and potential thereof which rests in the hands of the upwardly mobile rural poor.
Who, as was said before, seem to be terribly unrepresented in Anna Hazare's movement.